by Alasdair MacLeod
Gold Money
This article looks at the Fed’s funding challenges in the US’s new fiscal year, which commenced on 1 October.
There are three categories of buyer for US Federal debt: the financial and non-financial private sector, foreigners, and the Fed. The banks in the financial sector have limited capacity to expand bank credit, and American consumers are being encouraged to spend, not save. Except for a few governments, foreigners are already reducing their proportion of outstanding federal debt. That leaves the Fed. But the Fed recently committed to taper quantitative easing, and it cannot be seen to directly monetise government debt.
That is one aspect of the problem. Another is the impending rise in interest rates, related to non-transient, runaway price inflation.